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One of the biggest advantages of options trading is that you can make money in any market. All you need is the right strategy to take advantage of the moment.
That's easy when stocks are in the middle of a scorching hot bull market or during a meltdown like we saw in April.
But what do you do when uncertainty is high?
The S&P 500 just slammed through its all-time high in the middle of one of the worst recessions on record. The stock market keeps heating up even as bad news keeps coming for the economy. Something has to give.
But our experts are on the case. In fact, Money Morning's options trading specialist, Tom Gentile's proprietary Money Calendar is showing a historic pattern that's giving us clarity amid the chaos.
And Tom's strategy is showing us the best options to buy to take advantage of this pattern…
The Best Options to Buy Before Labor Day
The Fed rattled markets yesterday when meeting minutes showed the central bank was worried about the health of the economy. That sent the bond market reeling.
But Tom has the perfect setup to take advantage of this.
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His proprietary Money Calendar, using a huge database of historic prices, tells him that market action around the holidays is fairly regular. And Labor Day is just around the corner.
Traditionally, traders would buy a few days before the holiday and sell right after. This has been a pretty effective strategy too. From 1950 to 1977, this pattern worked better than 80% of the time, though from 1977 on, its win rate has been in the 50% range.
But with Tom's Money Calendar, he knows the actual best days to buy and sell. He said that the bullish play on stocks and on bonds begins right now, with an expected 1% gain for stocks and 2% for bonds by the day after Labor Day. It's been a winner looking at the last two decades of data.
With the bond market due for a bounce back and a historic pattern powering a move higher, Tom looks at the iShares 20+ Year Treasury Bond ETF (NASDAQ: TLT) as the benchmark here for bonds. But as readers know, 2% on an ETF is not good enough for us, and we like to use options to leverage that gain up to a potential 600%.
The strategy to use here is called a bull call spread. As the name suggests, it is a bullish strategy using call options. A spread is a trade where you buy one option with a lower strike price and sell another option with a higher strike price at the same time. The money you collect for the higher options partially offsets the money you pay for the other. That lowers your cost and your risk.
To set this up, buy TLT Sept. 11 2020 $170 calls and simultaneously sell the TLT Sept. 11 $172 calls. You're going to pay $0.56 a contract for the $170 calls, but you'll take in $0.32 per contract on the $172 calls, so you're risking $0.24, but your maximum reward is a cool $1.75. (Remember though, you've got to remember to multiply all this by $100 per option.)
If TLT rallies to $172 or higher by Labor Day, you earn the maximum profit. If it ends up between $170 and $172, you still profit, but just a little less.
The caveat is that you must exit the trade on Sept. 8, the day after the holiday, no matter what.
But Tom's not stopping there.
Find out how his research and expertise can make your trading more profitable, right here…
Learn How to Harness This Powerful Options Trading Secret for Yourself
Live from his private office in Florida, America's No. 1 Pattern Trader is revealing his most lucrative options trading secret yet.
It's the reason he's able to make such fast, profitable moves on companies like Netflix, Apple, Facebook, even Amazon – the reason he's able to see major paydays long before they happen.
We're talking about the potential to see the future of any stock on the market.
And Tom Gentile's going live to show you exactly how to do it.
Believe it or not, it's as easy as a few simple clicks of your mouse…
In no time at all, you could be lining up trade opportunities one by one and watching as your account grows bigger and bigger.